Keegan Received $25,000 by Way of an Employee Loan at a Rate

Keegan received $25,000 by way of an employee loan at a rate of 1% interest when the CRA's prescribed rate of interest was 3%.Keegan is in a 40% income tax bracket.What is the actual cost (rate) of Keegan's loan? (Assume there are no fluctuations in the prescribed rate of interest.)

A) 1%
B) 1.2%
C) 1.8%
D) 2%